Stock investors buoyant despite small bounce from QE3
Hong Kong shares are likely to continue to rise because of economic fundamentals, and not because of hot money flows into the city
The Hong Kong government may be increasingly worried about hot money pouring into the city, but stock market participants are playing it cool.
The reason could be that they have not seen much of that hot money flowing into the stock market yet, unlike the inflows that followed previous rounds of US monetary policy loosening known as quantitative easing.
But the expectation is that it is just a matter of time until it does. Investors pushed the key barometer of share prices, the Hang Seng Index, to a 15-month high this month of 22,111.33 points. That was the highest level since August 2 last year.
The rally in the index got under way on August 31, when US Federal Reserve chairman Ben Bernanke hinted that a third round of asset purchases, or quantitative easing, could be coming.
Late last month, the Hong Kong Monetary Authority began intervening in the money market to stem a rising Hong Kong dollar, blaming inflows of hot, or speculative short-term money, and warned of asset bubbles forming in the city's economy.
The government responded by dampening the already overheated property market through, among other things, imposing higher taxes on non-local home buyers. Financial Secretary John Tsang Chun-wah blamed QE3 for fuelling real estate prices.